Navigator Core Algorithm Status
In summary, the market is likely to push a bit higher this week. There is a 70% probability that the upper end of the S&P 500 Index’s projected range will be 3893. If the market does start a correction this week, the lower end of the range is projected at 3766. There are possible continuation entry points on Transportation (IYT), Energy (XLE), and Financials (XLF or KBB). Big Tech (and therefore the NASDAQ 100 (QQQ)) has reasserted relative-strength leadership. Having said all of this, the market remains a bit stretched short-term, with a peak in the nominal 40-day cycle projected soon, and the next intermediate low projected to occur mid-February.
Last Friday, we helped everyone enter the S&P 500 Index on a continuation trade. The signal came at 3825.50 on the S&P 500 E-Mini futures, and the market allowed quite a bit of time to enter. Likely, some entered either slightly above or below this zone.
The follow-through has been muted by key resistance around 3850. That is the level to conquer if we are to take the market higher this week. As I often say, the S&P 500 claims or surrenders its territory in 50-point increments. When I see the index close above 3862, my confidence increases that the index has overcome the 3850 resistance and is ready to move to the next 50-point increment level at 3900. A close below 3833 would lessen my confidence and increase the likelihood that the market would move back to test 3800.
Recently, we have been experiencing sort of a push-pull rotation with growth stocks (think technology like the NASDAQ 100 (QQQ) and value stocks (think energy (XLE), financials (XLF or KBB), and transportation (IYT)). Essentially, Growth and Value have been swapping leadership positions over the past few months. Last week’s most notable event was the reassertion of Growth (big tech leadership), also reflected in the NASDAQ 100 index’s steep rise.
The big tech bounce came at the expense of profits rotating from the value sectors. This caused the value sectors mentioned above to move back to their mean on the daily charts – which is where they start the week. Continuation entries, or even the opportunity to take a short-term long position in the three sectors, is on my radar. I would use a close above the 5-day Exponential Moving Average on the three sectors as a potential buy signal, and I will communicate anything I see.
It is also important to note that we are in the “Nimble Stage” when considering how to treat our long S&P 500 or NASDAQ 100 positions. This means you need to be attentive because a correction in the 3% to 5% range (at minimum) will begin soon, based on the distance these indices have achieved from their mean at the weekly and daily 21-day Exponential Moving Averages.
Supporting the case for a near-term correction, we are a bit more than halfway through the Nominal 40-day cycle, with the next low projected in mid-February. The market is likely to peak and begin to move into that projected low soon.
Adding to caution here, February typically is one of the weaker months in the market, and reassertion of narrow, big-tech leadership is causing breadth to narrow, along with breadth divergences, which often precede a pull-back in the indices.
If you cannot be in front of your computer, consider setting a stop each morning on your long positions about 2 points below the 5-day exponential moving average. For example, I would set my stop at 3825.50 on the S&P 500 E-Mini Futures this morning – which also coincides with breakeven on our Friday continuation entry and ensures a profit for our original entry point at 3812.50.
In summary, then, the market is likely to push a bit higher this week. There is a 70% probability that the upper end of the projected range will be 3893. If the market does start into a correction this week (and I don’t expect that quite yet), the lower end of the range is projected at 3766.
Stay alert for my signals this week. If you are interested in live trading tomorrow, please drop me a quick email at info@BluPrintTrading.com so that I make sure you get an invitation.
A.F. Thornton